I am 34 years old and married, with a two-year old son. My goal is to build a portfolio to support my son’s higher education and my retirement. I am investing in VPF (100 per cent of basic) and have accumulated a sizeable amount so far. I have been investing ₹30,000 in the following funds for the past one year through the SIP mode. 

I have another ₹3 lakh available to invest. Due to the current volatility in the market, I am planning to make use of the Systematic Transfer Plan (STP). I would like to invest ₹5,000 in four to six funds each week, until ₹3 lakh is fully invested.

My fund choices are:

Large-cap: BNP Paribas Equity, IDBI Top 100, Birla Sun Life Top 100, UTI Equity, ICICI Pru Focussed Bluechip.

Large and mid-cap: Franklin Prima Plus, Kotak Select Focus, Mirae Asset India Opportunities, SBI Blue Chip, Franklin India Flexicap.

Multi-cap: Franklin India High Growth Companies, ICICI Prudential Value Discovery, L&T India Value

Mid and small-cap: BNP Paribas Mid Cap, Canara Robeco Emerging Equities, Mirae Asset Emerging Bluechip, DSP BR Microcap, Franklin India Smaller Companies, UTI Midcap.

I was under the impression that investing in multiple funds and fund houses will help diversify my portfolio. But after reading your articles, I realise I should not be investing in so many funds. I need your advice to rearrange my portfolio. I have no major commitments and like to take risks.

Vishnu Prakash

It is good to see you starting so early on your child’s education and your retirement portfolios. We assume from your query that you are already investing ₹30,000 per month in equity funds and would like to now add this ₹3 lakh to your investments by way of STP. If your plan to invest ₹5,000 per scheme in four to six funds each week, until the lumpsum runs out, it may not really give you the benefits of cost averaging. Even if you stick to just four funds, you would be investing ₹20,000 each week or ₹80,000 a month. The STP would run its course in just four months. If the markets happened to be rising or are at high levels in this period, you would not really get the benefits of the STP. However, given that you are looking at a really long horizon on your investments (16-24 years), you need not worry too much about timing your investments too fine.

Our suggestion would be that you arrive at the sums that you would require for your child’s education and your retirement using the many calculators available online, and then work back to arrive at how much you will have to invest to get to that goal. We would also advise maintaining separate portfolios for education and retirement.

You are right in recognising that there is no need to own more than four or five funds for each goal, as these funds in themselves will provide adequate diversification. After all, most equity funds in India invest in the same investible universe of 200-250 stocks and owning 15-16 funds in your portfolio will only lead to your duplicating the same holdings. For adequate diversification, we suggest you diversify across market caps, style and fund houses. You can achieve market cap diversification in a single fund by owning multi-cap, or large and mid-cap funds with good track record. Franklin India Prima Plus or Flexicap and UTI Equity are good choices here.

For diversifying across styles, ICICI Pru Value Discovery and L&T India Value would be good options. In addition, if you would like to add a kicker to your returns, DSP BR Microcap or HDFC Midcap Opportunities fit the bill well.

We suggest you choose from the six schemes mentioned above to tailor both portfolios. However, don’t forget to review your portfolios once in six months, to replace very poor performers.

Related Topics